Fiscal 2022 impacted by geopolitical crises and a weak economy

• Group sales total EUR 18.0 billion (+13.0%)

• EBITDA of EUR 1.6 billion (–47.6%)

• Positive free operating cash flow of EUR 138 million (–90.3%)

• Greenhouse gas emissions fall to 4.7 million metric tons (–9.6%)

• Circular economy and climate neutrality more important than ever

• Dividend: no payout for fiscal 2022

• Outlook for 2023: economic conditions remain challenging

Despite lower sales volumes as a consequence of the recessionary environment, Covestro’s Group sales grew by 13.0 percent to EUR 18.0 billion (previous year: EUR 15.9 billion), the highest-ever figure in the Group’s history. A key factor in that was a considerably higher selling price level. High energy and raw material prices and slackening demand in the course of the year impacted the Group’s EBITDA. It fell in full-year 2022 by 47.6 percent over the prior-year figure to EUR 1.6 billion (previous year: EUR 3.1 billion). Net income declined to EUR –272 million (previous year: EUR 1.6 billion), in particular as a result of exceptional impairments of noncurrent assets totaling EUR 463 million and impairment losses on deferred tax assets from tax loss carryforwards totaling EUR 255 million. Despite the challenging economic environment, Covestro achieved a positive free operating cash flow (FOCF) of EUR 138 million thanks to strong working capital management. ROCE above WACC in full-year 2022 was –5 percentage points (previous year: 12.9 percentage points). The nonfinancial key management indicator for reducing greenhouse gas emissions improved by 9.6 percent to 4.7 million metric tons of CO2 equivalents (previous year: 5.2 million metric tons).

“2022 was a year of polycrisis with unprecedented challenges for Covestro. That is reflected in our results for the fiscal year,” says Dr. Markus Steilemann, CEO of Covestro. “The action we took last year was all the more resolute: We reduced our energy consumption, cut costs and worked on further developing our products. Our vision of a circular economy as well as our strategy “Sustainable Future” have proven to be a strong foundation. We are continuously gearing our product portfolio towards sustainable growth markets such as wind energy or electromobility and serving the increasing demand for circular solutions. One thing is clear, our contribution is essential for a sustainable future.”

Solid balance sheet despite negative net income

“As expected, the global crises adversely affected our business performance and, due to the resultant exceptional impairments, meant that we posted negative net income for the first time,” says Dr. Thomas Toepfer, CFO of Covestro. “Yet at the same time we see that Covestro has a solid balance sheet and a stable liquidity position. In addition, we are increasingly interlinking our financing and sustainability strategies and thus gearing ourselves further towards sustainable growth. That means we are well equipped to deal with the current uncertain economic situation.”

Covestro adopted a raft of financing measures last year to bolster its liquidity position. For example, the company issued Schuldschein loans for the first time in October 2022. They are linked to an ESG (environmental, social, and governance) rating and, driven by strong demand, reached a total volume of around

EUR 650 million. The fact that the Group is increasingly linking its financing strategy to its sustainability strategy is also reflected in the first-ever establishment of a “Green Financing Framework”, which was published in May 2022. It enables green bonds and other green debt instruments with a clear benefit for the environment and society to be used for financing and refinancing products or projects. In this context, Covestro issued its first green euro bond with a total volume of EUR 500 million in November 2022.

No dividend payment for fiscal 2022

Due to the negative net income in fiscal 2022 and in line with the company’s dividend policy, the Board of Management decided that no dividend will be paid for fiscal 2022. Covestro’s dividend policy stipulates a distribution of between 35 and 55 percent of the net income in order to create a stronger link to the Group’s overall business situation. Under it, a record dividend was paid out to shareholders last year for fiscal 2021.

Sights set on sustainable growth

Despite the current global challenges, Covestro continues to systematically implement its strategy “Sustainable Future” and align its portfolio to growth markets. These include areas of importance in the future, such as electromobility and wind energy, where a significant increase in demand for high-performance and sustainable materials is expected. Covestro also expects to see a growing demand in the area of energy efficiency, for example in the field of efficient insulation solutions for buildings and refrigerators.

In addition, Covestro is optimizing its production capacities in a targeted manner for sustainable growth and improving its offerings and cost position in relation to MDI, among other things. For instance, the Group successfully began operating a new world-scale plant in Tarragona, Spain, in February 2023 so that it can manufacture its own chlorine independently. This investment of around EUR 200 million will strengthen the efficiency and competitiveness of the Group’s MDI plant there. The new chlorine plant is also the world’s first industrial-scale plant where innovative oxygen depolarized cathode (ODC) technology is used. It enables energy savings of up to 25 percent. At the new plant in Tarragona, up to 22,000 metric tons of CO2 emissions per year can be avoided compared with existing processes.

Circular economy more important than ever and a strong focus on the customer

To help its customers reduce their own carbon footprint and identify more sustainable product alternatives more quickly, Covestro introduced the new "CQ" concept last year. With this, the Group highlights those products that contain at least 25 percent alternative raw materials. At the same time, Covestro continues to expand its portfolio of sustainable products. For example, the Group has developed a partially bio-based and fully recyclable coating resin for the packaging industry that acts as a consistent protective layer for food. This is a major step forward, as food packaging is still mostly made of multilayer composites that provide food protection but reduce the recycling of paper packaging. Other developments in the past year included the introduction of climate-neutral MDI1 and renewable toluene diisocyanate (TDI)2.

The company is also pressing ahead with its vision of becoming fully circular and is working to expand the use of alternative raw material sources in order to make itself independent of fossil resources in the long term. For example, the Group is gradually converting its production sites to electricity from renewable sources. The most recent example of that is the large supply agreement signed in December 2022 with CGN New Energy for the procurement of 300 GWh of wind and solar power annually for its site in Shanghai, China. Since the beginning of 2023, the site has met over 30 percent of its electricity requirements from renewable energy as a result. This agreement therefore marks an addition to the existing power purchase agreements (PPAs) that supply Covestro’s production sites worldwide with renewable energies. In full-year 2022, the Group will therefore cover 12 percent of its global energy requirements with electricity from renewable sources, a figure that is expected to rise to 16 to 18 percent in 2023.